More than seven years after the Great Recession began in 2007, many Americans are still struggling to put their economic lives back together. Factors such as low wages, high interest rates on credit cards and a mediocre job market continue to make a lot of families feel like the recovery passed them by. It doesn’t have to be this way.
The main cause of our troubles is monopoly capitalism, which is a system dominated by giant companies that charge high prices, pay low wages and extract huge productivity from employees.
As a result, supply rises faster than demand and generates layoffs. So the solution lies in breaking up the behemoths and returning to free markets, where many firms engage in price and quality competition.
That’s easier said than done, though, because of the political considerations. Any attempt to move legislation through Congress would meet with failure. But there are other options. Any U.S. president could take actions to improve the situation without going through Congress. Among the possibilities:
- The president could use a 1987 law and direct the FDIC to create what is known as a “bridge bank” that would compete with large banks. This could cut interest rates on credit cards by two-thirds. Banks still charge the same high interests rates they did in 2007, even though, thanks to the Federal Reserve, their borrowing costs are close to zero.
- The Commodity Futures Trading Commission can use its emergency power to raise the margin requirement for buying oil futures from the current 6 percent to 50 percent. That would cause the oil price to fall to its free-market level of $20 per barrel. During past minor recessions, such prices usually fell to less than $15 and helped speed up recoveries.
- The Treasury should issue five-year bonds to needy retirees, offering a fixed interest rate of 3.5 percent. This would not raise long-term borrowing costs for the government, but it would offer a lifeline to pensioners nearly devastated by Federal Reserve policies.
- Ideally, the minimum wage should gradually be raised and linked to inflation and national productivity. I doubt Congress would agree to that. But as an alternative, the president should continue to ask federal contractors to raise their minimum wage on government-supported work. In competitive markets, the real wage rises in proportion to efficiency gains, so linking the minimum wage to national productivity would generate a free-enterprise system in which, over time, the living standard rises for all.